This set me to thinking about the use of space in Class A buildings in prime downtown/midtown locations in general—particularly since occupancy is almost invariably a firm's second largest expense after salaries and benefits and well ahead of "everything else."   And some of the figures can be eye-popping, such as Akin Gump's recent lease of 200,000 square feet in New York's Bank of America Tower for over $100 per square foot (the building opens next year).

Why, I had to ask, were the much-vaunted collaboration-at-a-distance technologies not cutting into demand for extremely dear space catty-corner from Bryant Park?  As the must-read Tim Harford recounts in the Financial Times's weekly "Undercover Economist" column:

"Virtual worlds, BlackBerries, video-conferencing from the local Starbucks – it has all become so easy, and so commonplace, so quickly.

"Intuitively, that should mean that geography becomes less important. E-mail and video-conferencing mean fewer flights. No more business conferences or meetings at Davos. Telecommuters don’t need to clog up the roads, and property prices in London and New York should slide as people carry out their investment-banking responsibilities from Anglesey or Iowa.

"It doesn’t take a genius to figure out that there’s something wrong with this argument."

What's wrong, of course, is that virtual propinquity and physical propinquity are not substitutes:  They're complements.  (This notion is argued more formally in Information Technology and the Future of Cities, by Jess Gaspar of the Graduate School of Business at Chicago, and Edward Glaeser of Harvard's Kennedy School of Government, available on SSRN.)

In economics-speak, a "substitute" is a good or service that can be used in lieu of another if one of the pair is unavailable, inconvenient, or expensive.  In general, the more one uses of one the less one uses of the other. Think coffee and tea, or flying and driving (short trips only, please!).  Conversely, "complements" are goods or services which tend to drive demand for each other in tandem.   Think peanut butter and jelly, or bread and butter.

The key insight is this:  When telecommunications technology improves, some things that used to be done face-to-face will now be done remotely, but/and the easier it is to keep in touch with more people remotely the more face-to-face meetings will ultimately eventuate. 

In a more readable treatment of their academic paper published in the Chicago GSB magazine, "Will There Be Cities in a Virtual World?", Gaspar and Glaeser note that one of the key functions of a city is to "drive down the costs of face-to-face meetings," and then hypothesizes someone deciding whether to do a project "privately" or "jointly."   Employing only one—eminently sensible and defensible—assumption, namely that face-to-face interaction is more intense and more productive than time on the phone or in email ping-pong, they quickly conclude that cities may possess a "productivity advantage" because face-to-face meeetings are cheaper than in "the hinterlands."  They then introduce this fabulous data (OK, I'll admit I have a recessive gene as a data junkie):

"If telecommunications and face-to-face interactions are substitutes, then people who are physically closer, and presumably see each other more often, would need to call each other less often. Conversely, if face-to-face contacts increase the demand for electronic contacts, then people who are physically closer should call each other more often.

"U.S. telephone data from the mid 1970s shows that more than 40 percent of phone calls were made to places within a two-mile radius, and more than 75 percent were made to places within a six-mile radius. The same effect has been observed in the 1990s in Japan."

The authors also track the raw number of business trips divided by real GDP since 1970, and found a "significant increase."  Because airline prices (cost per seat-mile) fell dramatically during the 1980's, they also correct for that and still find that since the mid-1980's when faxes and then email began to be ubiquitous, business travel relative to real GDP has risen more than 50%.

Admittedly, some of the increase in the total tonnage of business travel may reflect changes in the composition of economic activity and the increasing importance of services in general and high-end professional services in particular as contrasted with manufacturing, and wholesale

Wherever one comes out on that debate, the most intriguing aspect of all their findings takes us back to the difference in the quality of interaction in face-to-face vs. electronic communication:  Hands down, face-to-face is richer, more nuanced, capable of communicating more complex and subtle concepts more efficiently.  As we would say today, face-to-face is "higher bandwidth."

Now, ask yourself where higher bandwidth is valuable? 

Precisely.   Face-to-face communications are more valuable where the underlying transaction being discussed is more sophisticated, complex, and one-of-a-kind.  Face-to-face also beats electronic the higher the trust quotient required between you and your interlocutor.  We can specify the price per bushel and the delivery date "FOB" in an email, but can we really structure a collateralized debt obligation through our BlackBerrys?

This begins to explain why World Cities are disproportionately home to the creative and performing arts, investment banks and management consulting firms, great restaurants and cutting-edge design, advertising and multimedia firms, technology and life science incubators, and, yes, sophisticated legal practices.

So what would my advice be to the  junior and the senior partner surveying the library, and staring at the prospect of $100+/square foot leases in their future? 

Put your firm's assets that need to be catty-corner from Bryant Park precisely there; expect to pay up for the privilege; and enjoy it.  You've arrived.

Today, and Tomorrow

Lately there's been heightened discussion of whether firms' Managing Partners should be full-time CEO's, or whether the traditional custom of their being active practitioners, billing gobs of hours on real live client matters and managing the firm the rest of the time, should be maintained.    Partly using as a journalistic "hook" the Dewey/Orrick non-merger, The Wall Street Journal even wrote about it earlier this week.

Their verdict:  There are pros and cons.

"Should top law-firm managers have active law practices?
Pros:
Lawyers respect great lawyers
Client contact keeps you current with business needs
Sends message that law is a profession
Cons:
Lack of focus on strategic planning
Lack of time for communicating with colleagues
Lack of time to recruit"

I'd like to delve into this a little more deeply.

At many firms, there is simply no policy, formal or informal:  The firm chair practices or not, as he or she happens to prefer.   Exhibit A in this is Mort Pierce, head of Dewey, who bills a jaw-dropping 3,300 hours/year and who freely admitted to the WSJ that "Management is not my passion."  

Before proceeding another syllable, can we just step back here a moment?

Can anyone in the audience imagine the reaction if the CEO of, say, a Wilshire 5000 company dropped that quote into the eminent pages of the WSJ? Right: They would be frog-marched out of the executive suite before lunch.  (I make this pluperfectly obvious observation only to point up the chasm between law-firm land and corporate-land.)   Sorry; lost my head. Back to the show.

At other firms, the compensation system may unduly reward the personal hourly productivity of partners:  Unless there's an explicit exception for the Managing Partner, self-interest will dictate an absentee-manager approach.  The calculus is not complex:  Take on an often-thankless job while impairing my current earnings and, through losing track of clients, tarnish my future earnings as well?  I respectfully decline.

Yet how irrational—nay, bizarre—is this?  Law firms where the Managing Partner continues an active practice are no different than, say, airlines run by pilots carrying full flight schedules.  Things might continue to perform perfectly satisfactorily on a day to day operational level, but one would have to question their ability to cope with fundamental strategic and economic changes. And I can also tell you which airlines I'd invest my money in: Not those run by pilots.

In our own industry there may actually be some empirical evidence that firms executing a calculated long-term strategy need full-time Managing Partners.   The WSJ piece quotes David Wilkins, the director of Harvard Law School's Program on the Legal Profession, as saying “firms that have radically moved themselves up the prestige ladder and the profitability ladder and expanded their geographic scope have had full-time leaders," and he cites as examples Orrick under Ralph Baxter and Bingham under Jay Zimmerman (I would add Reed Smith under Greg Jordan and K&L/Gates under Pete Kalis).

But the job of the Firm Chair has far more constituencies than that of a rank-and-file partner, whose monolithic constituency is "my clients."  Consider this:

As if this weren't enough, there are all the other normal "hygiene" components to management that you're responsible for.

Now, perhaps, we can reimagine the question about whether Managing Partners should actively practice.  Isn't the choice really this:

• Bill 1,000 or so hours to a handful of clients—whose interests always come first, remember—and manage the firm, essentially, after client demands are satisfied.  Or
• If you're serious about contributing the highest value you possibly can to the firm, resolve to be a single-minded driver of strategy and competitive strength in our ever-more-challenging  environment.

Of course, if I were the one being asked, since I'm at the absolute 180° opposite end of the spectrum from our friend Mort Pierce, I would choose Answer B in a heartbeat.  Which only restates the deeply human truth that if you're not passionate about what you're doing, you better keep looking.

Could that be a scenario you, or your successors, will be facing some day?  In the UK, something very like it is already happening.    Thanks to the Clementi Commission reforms, which will take effect next year, public investment in law firms will be legal; indeed, law firms could hypothetically take themselves through an IPO.  And it's not just public investors, but partners bearing money of all types:  Firms could join forces with investment advisors, management consultants, commercial real estate brokers, wealth management specialists and private bankers, etc., etc.

According to Legal Week, Goldman Sachs, Rothschild, and other smaller investment houses have been contacting "major City firms...to gauge their interest in outside investment."  Indeed, we have positive confirmation that these firms have been contacted:

• Allen & Overy
• Ashurst
• Berwin Leighton Paiser
• CMS Cameron McKenna
• Lovells
• Macfarlanes
• Olswang
• Simmons & Simmons; and
• Taylor Wessing

Have these firms taken leave of their senses?  What could possibly be in it for them?

I have news for you:  The firms are taking the bankers' calls, and I predict—with, in the immortal words of the late Drexel Burnham, when it proposed to underwrite a sub-par borrower's junk bonds, "a high degree of confidence"—that we will see just such investments occur almost as soon as the lid comes off.

For one thing, the firms themselves are not evincing what I'd call stern resistance even at this early stage.  As the managing patner of Taylor Wessing put it:  "We have partners looking at the issue of external investment but we are currently sitting in the'not totally convinced' camp."

"Not totally convinced"?!   Give them another year to think about it, before it can actually happen of course, and "not totally convinced" is going to edge into "terribly flattered, and yes we don't mind if we do."  

Meanwhile, the head of corporate banking at Olswang also seems to be enjoying the blandishments: "It is definitely something that is being touted around. The idea is for investors to have a fixed income. They will be looking at law firms like utilities - by and large law firms are not going to go away and they produce the closest thing to a guaranteed return."

My take on it is that we lawyers learn (to paraphrase Oliver Wendell Holmes), if not by logic, by experience.  And we have all seen what happened when the "Big Bang" in London and in New York deregulated securities broker-dealers:  Those that did not quickly pump up their balance sheets constitute a roster of names now in the netherworld.

You differ?  Trading on a global platform is nothing if not capital-intensive, while law firms are nothing if not labor-intensive?  Fair point.  But one can make savvy investments in labor, as well, and in developing a cross-border technology and infrastructure platform that can provide lasting competitive advantage to your professionals and your clients.

The fun part is that about a year from now the gloves will come off.  I for one can't wait to see what happens.

• The New York Times
• Crains New York Business
• CNN/Reuters
• Law.com
• and a plethora of sites from the blawgosphere.

But if you only want to read one article about it—and I've certainly had my fill surfeit at this point—go to Legal Times' excoriating coverage, some hot dots from which include:

• "At Dewey, the hemorrhaging continues. "
• "It represents at least the fourth time in four years that Orrick has failed to cinch a merger, prompting speculation about why the firm can't close these deals."
• “It's a moment of great instability for Dewey,” says Peter Zeughauser, a California-based legal consultant. “The fact that they couldn't pull it off without losing some of their best talent will raise questions about their future.”
• And finally:  "The partner defections seemed to fuel a vicious cycle in the negotiations. The departures prompted Orrick to ask for new terms, the Orrick source says. But these new terms in turn complicated Dewey's effort to stem further departures because they added to the uncertainty surrounding the deal, the Dewey source says. “You can't do a deal until you know the terms, and the terms kept changing with Orrick,” he adds. "

But, as always, we are here with malice towards none, and with charity for all, so let's take this as an object lesson in just how difficult law firm mergers can actually be. 

Truth be told, corporate America has a less than stunning track record in M&A, although McKinsey believes they may be getting a little better at it compared to the last M&A activity spike in 2000:    According to "Are Companies Getting Better at M&A?," which "reviewed nearly 1,000 global mergers and acquisitions from 1997 to 2006, comparing share prices two days before and two days after each deal was announced," in which they examine both "value created" (which can of course be a negative number) and "proportion overpaying" (which leads to those nasty negative numbers), and find that public-company America is doing better this time around than last.

Specifically:

• the "value added" in the last boom was +1.9% of the deal's total value; this time around it's 6.1%; and
• the "proportion overpaying" reached a peak of 73% in 2000 and is down to (a still ugly) 56% in 2006.

This is how they sum it up:

"The improvements reflected in our M&A indexes are encouraging: despite the recent intense volume of M&A, it appears that acquirers have been disciplined about creating value. Nonetheless, plenty of room remains for acquirers to improve their M&A performance by focusing on the scope to create value and to ensure that they don't overpay."

Granted, law firms don't "overpay" (or underpay) explicitly when they merge, since it's mostly treated as a pooling rather than an acquisition; the division of outstanding liabilities, and partners' contributions to capital, are the primary exceptions. But an explicit value is never placed on the acquired or the acquiring firm.

The point is not that there's a 1-to-1 analogy between corporate-land and law-firm-land; the point is that even companies who merge for a living have a remarkably unimpressive track record.

On the other hand, this McKinsey piece, Habits of the Busiest Acquirers, talks about how to tilt the odds in  your favor.  It describes the results of interviewing dozens of executives responsible for pre-merger target identification and strategic justification, as well as post-merger integration, to find out what separates winners from losers.  While the results are somewhat complex, I think this fairly states their findings:

• The successful companies "use M&A to complement a company's distinct capabilities. They understand the limitations of acquiring a company in order to acquire its superior management or operational know-how."  Translated to our world, this frankly is a counsel in one direction only:  We essentially never merge for "superior management or know-how," but it does mean that mergers designed with a view to creating more complementary practice groups should stand better odds of success than mergers blind to that perspective. 
• McKinsey and its interviewees strongly endorse the notion of strategic M&A as a tool for enhancing a firm's geographic footprint, if that would be quicker and more efficient than organic growth. 
• Consider this tale of two strategies, if you will:
  • One high-tech company, for instance, used a combination of acquisitions and organic growth to pursue its twin strategic goals: reducing costs and becoming the leading US company in its industry. Pursuing its goals only organically would have taken too long because it needed an immediate nationwide presence to capture market share ..."  In other words, a well-thought-out, carefully calculated plan, designed to capitalize upon the firm's position and compete more aggressively.  Then we have:
  • "Contrast this long-term success story with the experience of a financial-services firm that relied almost entirely on acquisitions to fuel its growth in the 1990s. The company's stock skyrocketed as it captured all the synergies, and it significantly outperformed its peers. However, hidden in the massive top-line growth and market appreciation was the fact that the company was devoid of organic growth."  How true does this ring?  Haven't we experienced the syndrome of growth-for-its-own-sake?
• Lastly, consider the post-merger integration issue, which can trump everything that went before:
  • "The integration phase of an acquisition is often the time when deals go wrong; some studies blame poor integration for up to 70 percent of all failed transactions. According to the vast majority of acquirers we spoke with, the responsibility for integration falls to the business units. Not that they are to blame for all of the widely publicized failures, but in the words of one business-development executive, "Our biggest challenge is to make sure that the corporate M&A team and business unit executives work in concert on an acquisition"—an important insight."

Read that last phrase again:  Having the M&A team and the business unit (practice group) leaders work in concert.  What that really means is having the entire firm behind the merger:  Not just the firm chair, not just the executive committee.

Here, if I read the tea leaves correctly, we have the dark core of the failure of the Orrick/Dewey merger. 

I never sensed the partnerships themselves—practice group leaders on down—were behind the deal.  I sensed it was driven from the top, and the top alone. 

Understand:  First of all, I have no inside information that this is true (and I wouldn't write about it here if I did!), but I do have this sense.  Second, there is nothing wrong with initiatives being driven from the top; they almost always are (those that aren't are called insurrections).  The point is that the "top" must enlist support, fully, completely, patiently, collaboratively, sincerely.  Somehow that doesn't seem to have gelled in this case; more's the pity.

And so we are left with one firm, Orrick, with its greatest aspiration to date unrequited, and another firm, Dewey, materially bloodied by its encounter with the irresistible wave of consolidation reshaping our industry.

This stuff is not for children.

I'm pleased to be able to be able to announce the winners of the 2007 Law Technology News Law Firm and Law Department Awards.  If you're going to be at LegalTech, I understand tables for the awards dinner are still available.   (As a member of Law Technology News' Advisory Board, I'll be there.)

While all the winners deserve congratulations for their efforts, I need to highlight one in particular, the award for " most innovative use of technology in a law firm," which goes to Morrison & Foerster's Chief Information Officer, Jo Haraf, and the firm's Knowledge Management Counsel, Oz Benamram, for their development of "AnswerBase," a one-stop intelligent search system designed to present users with information drawn from every significant system within the firm, starting of course wit the document management system, but also including personnel and human resource records, financial and accounting data (down to the individual time-sheet level), client and matter databases, and even records of alumni.  Perhaps because AnswerBase draws from so many different data sources, its nickname is the "Googlification" of Morrison & Foerster.

The reason I need to highlight it is that I was retained by Morrison & Foerster to lead an analysis and review of AnswerBase vis-a-vis its predecessor Knowledge Management system during last summer and fall, and reached the resounding conclusion that AnswerBase was strongly superior to the firm's legacy systems, by providing highly relevant documents and discovering genuine subject-matter experts within the firm with impressive accuracy.   By interviewing a broad cross-section of lawyers at the firm's New York offices, I was able to determine that the design and functionality of AnswerBase essentially replicate, as I put it in my report, "the way lawyers think" rather than reflecting technical considerations or limitations.  Also as I put it there, the key challenge to any knowledge management system is to understand this fundamental truth:

Associates look for documents; partners look for clients.

So, for example, one associate had this experience:  "I had been researching the requirements for establishing a broker-dealer for a few days with little to show for my work; when I turned to AnswerBase, I found a firm memo outlining all the actual steps within a matter of minutes."

And a partner (and practice group leader) told me simply:  “Clients are very interested in knowing what else you’ve worked on that’s similar.   Why?  They don’t want to pay for you to go learn it:  So it’s very very helpful to find that stuff through AnswerBase.”

Recommind, the firm that provided the fundamental "MindServer" technology underlying AnswerBase, has built an online ROI calculator which lets you enter actual numbers for your firm (such as number of associates, median number of hours they bill, blended hourly rate, etc.) and see what they might mean for your firm.

Recommind has also published my whitepaper on AnswerBase, together with the Appendix which explores bases for calculating ROI.  I invite you to take a look, and again congratulate Jo, Oz, and their team for a fascinating solution to an age-old problem. 

To learn more, including seeing an online demo of AnswerBase in action, click on the Morrison & Foerster logo:

First, let's get some facts on the table.   In this I am aided greatly by the timely arrival (today) of Hildebrandt's annual recap of the highlights of 2006, which includes a section on diversity.

• According to The Minority Law Journal's Diversity Scorecard , the overall percentage of ethnic minorities in the 240 largest US law firms grew slightly to 11.4% in 2006, from 10.4% in 2005 and 10.2% in 2004.  The percentage of minority partners, however, is only 5%, compared with 4.7% the year before.  The individual law firm with the highest percentage of minority attorneys (23%) was Paul Weiss Rifkind Wharton & Garrison.  Wilson Sonsini Goodrich & Rosati has the highest percentage of minority partners (17.6%), and Greenberg Traurig reported the highest total number of minority partners (57).
• Five American corporations have undertaken an initiative to increase inclusion of minority-owned law firms among the law firms that perform their legal work.  DuPont, General Motors, Sara Lee, Shell Oil, and Walmart made a public pledge to place an aggregate of at least $16 million of business with minority-owned law firms in 2006.
• According to a new report, "Visible Invisibility:  Women of Color in Law Firms," by the American Bar Association Commission on Women in the Profession, women of color are leaving the legal profession at a high rate.  Among the findings are that 44% of women lawyers of color working in large firms reported being passed over for desirable assignments, compared to 39% of white women, 25% of men of color, and 2% of white men.

And corporate America is putting increasing pressure on firms to ratchet up their efforts to achieve meaningful diversity.  For example, here's a story about Gibson Dunn and McKesson, and here's one about WalMart, which includes this:

"Wal-Mart's new policy signals a growing determination by corporate legal departments to pressure outside counsel. It is no longer enough, the general counsel at the symposium said, to raise the numbers of women and minority lawyers in a firm's lower ranks if its upper echelons remain an exclusive club for white men. "

Other firms adopting similar policies include Cox Communications, Del Monte, Visa, and Pitney Bowes.  Indeed, an entire organization, the American Institute for Managing Diversity, has been set up to aid these efforts.

On the other hand, last fall Richard Sander, who is an economist and law professor at UCLA School of Law, best known for his empirical work on racial preferences in legal education (Systemic Analysis of Affirmative Action in American Law Schools , 57 Stan L. Rev. 367 (2004), updated his research with.  What's his thesis?  Essentially, Sander's articles posit that affirmative action in admission to law schools has substantial, negative, unintended consequences that harm the actual employment and career prospects of the aspiring minority lawyers-to-be who benefit from those policies.  The following chart, taken directly from Sander, illustrates what he thinks the problem is ("BPS" refers to his Bar Passage Study):

The firestorm that utterly predictably resulted is traceable in many places online, but one of the more comprehensive starting points is from the Minority Corporate Counsel Association in their rebuttal. 

But enough of the law.  How about the economics of diversity?

As it turns out, there's a fairly sizable management literature on the financial and performance impact of increased diversity.  While the financial results are slightly more tenuous and subject to the inevitable reservation that we can't perform "double-blind" experiments with real people and real companies in the real world, the literature on diversity's beneficent impacts on creativity, innovation, and agility is, to this reader, utterly compelling.  (Small digression:  "Double-blind" studies is perhaps technically inapt in this context, as it typically relates to clinical pharmaceutical trials where neither the doctor nor the patient knows who is getting a placebo and who is getting the compound being tested, but if I may be allowed a small degree of license, the analogy is to economics' inability to clone, say, an AmLaw 25 firm and watch what would happen over a period of years if one copy of the firm pursued business-as-usual and the other mounted a serious and sustained diversity initiative.)

As far back as 1999, in Think Global, Hire Local, McKinsey addressed the challenge of multinationals' ability to find appropriate local managerial talent in far-flung overseas locations.  While it's arguably not the identical problem as diversity in law firms, the conceptual analysis is, to my mind, identical, and here's the money quote:  "How can companies find so many suitable locals? Only by broadening the definition of "suitable" and investing heavily to train people who meet that broadened definition."

In other words, the definition of "desirable candidate" (for hiring, lateral recruitment, assignment to plum cases, or ultimate promotion to partner) needs to be "broadened" and your firm needs to "invest heavily [in] training" them.  Now, how hard is th at?

Harvard Business School has two more recent pieces right on point.  The first (2004) describes IBM's efforts starting under CEO Lou Gerstner to comprehensively improve their diversity initiatives.  It starts with a nice precis of what any significant "cultural change" of this magnitude requires—whether it's diversity, compensation, strategic re-positioning of the firm, or anything else sufficiently ambitious:

"Any major corporate change will succeed only if a few key factors are in place: strong support from company leaders, an employee base that is fully engaged with the initiative, management practices that are integrated and aligned with the effort, and a strong and well-articulated business case for action. IBM's diversity task forces benefited from all four."

Among other things, IBM appointed a "Chief Diversity Officer" who reported direclty to the CEO, and both Gerstner and his successor Sam Palmisano became role models for the effort themselves. 

And here's a fascinating exercise to ensure you stick with the diversity initiative:  Incorporate a focus on it into your monthly (or other periodic) meetings of the executive committee.  Gerstner says that during his entire tenure at IBM only two agenda items appeared invariably on each and every monthly meeting:  The financial performance results, presented by the CFO, and the discussion of management changes, promotions, and transfers, presented by the head of HR.  And diversity was always a key dimension of the second presentation.

Second, we have the even more pointed "Racial Diversity Pays Off," which begins with an HBS professor's hypothesis that there are two competing views of what "diversity" can rain down on a firm:

"According to [Associate Professor Robin] Ely, there are two competing theories about the impact of cultural diversity on work group performance. The first, which she called Position A, is an optimistic point of view. It is the idea that cultural diversity in work groups increases the pool of available resources, such as social networks, skills, and insights, to enhance the group's ability to be creative and solve problems.

"The second, Position B, is more pessimistic, she said. "According to this theory, what happens when you bring groups together is you get social comparisons, in-groups and out-groups, where people have a preference for their in-group members." Such preferences, the theory goes, can lead to miscommunication, stereotyping, polarization, and performance losses."

"1. Discrimination and fairness perspective. The work groups aspire to being color blind, so conversations around race are limited, she said. They believe there is no connection between race and the work, but racial bias can end up being destructive in the work group, said Ely.

"2. Access and legitimacy perspective. There is diversity only in certain parts of the organization. People are effectively shunted onto segregated career tracks and told, "This is what you're good at."

"3. Integration and learning perspective. Group members are encouraged to bring all relevant insights and perspectives to bear on their work. "

While these "states" of coping with and envisioning diversity are not static—the same firm can migrate from #1 to #2 to #3—only firms at the level of #3 found that the introductory friction inevitable in increasing diversity was far far more than overcome by the unanticipated fortuities, catalytic chemistry, and stained-glass-window serendipity of true diversity.

Do it for your bottom line?  Do it because it's the right thing?  Do it for more variety and some more just plain interesting colleagues in the workplace?  Pick your justification.

But Just Do It.

What is this slippery creature?  According to CIO Magazine's 2007 State of the CIO report, it is "less technical than it is social," and

How well an organization has aligned IT processes with the business strategy depends on "how well the CIO is communicating with C-level colleagues," says Laurie Orlov, vice president and director of research for Forrester. "They need to be able to fully communicate what IT is doing and why that is important to the business strategy."

This is where alignment "brings the money," as CIO puts it, recapping their annual survey.  These (self-reported) scores represent "aligned" vs. admittedly un-aligned CIO's:

• 24% of aligned CIO's reported enabling new revenue, vs. 11% of un-aligned;
• 38% vs. 23% in creating competitive advantage;
• 45% vs. 30% in enhancing competitiveness next year;
• yet only one out of five identifies themselves as aligned, and a depressing 80% consider themselves not.

The coin of the realm, as in all matters involving cross-departmental trust, is simple human trust and communication.  CIO sums it up by recounting the experience of a CIO at a privately held publisher who has a simple policy:  At least once a week, he makes  a point of meeting a business department leader out of the office—lunch, drinks, a round of golf—and does a sanity check of how IT-related projects are going.  As he puts it, this turns potentially threatening exercises in dueling accusations into opportunities to "look for solutions rather than assign blame." 

CIO underlines the point:  "And when you get down to it, blame is what a lack of alignment is all about. It is resentment that a service paid for does not deliver more business."

In a companion piece, CIO elaborates on how IT leaders that work across the divide between "pinstripes and process" spend more time with their fellow CXO's, less time putting out IT crises, and are more likely to have been economics majors or have MBA's.  They don't talk about "IT projects," they talk about "business initiatives."

That's not to say that being a business partner means being a business "pushover"—and taking on more than their resources can tackle.  Being smart about what drives the business also entails establishing priorities.  The CIO at a firm with a few dozen lawyers can't match Skadden; pick your battles.

Is much of this obvious?  Perhaps—unless you'd never thought about it.

In the 21st Century, the competitive landscape will increasingly be shaped by IT.  You need to have the right CIO on-board, and I'm writing this to remind you of that imperative.  Indeed, someone recently asked me if I thought the CFO or the CIO had the better overall "grasp" of what a firm's about.  And in my heart I knew a sea change had occurred.  I responded:

"Ten or twenty years ago, the CFO without a doubt.  Today, and as far ahead as the eye can see, the CIO."

Ram Charan is a name you ought to know if you don't already.  A Harvard Business School MBA and Ph.D. and former HBS faculty member, his books have sold more than 2-million copies, including one I've read, Execution, co-authored with Larry Bossidy.

What's his expertise?  Essentially, it's how things get done in organizations:  That is to say, getting things done more effectively.  "Give me a mediocre strategy and superb execution over the reverse" could be his tagline (if it isn't—I don't know what his tagline would be, actually, and he's probably above having one, at least blatantly). 

He's out this month with a new book, Know How, subtitled "the eight skills that separate people who perform from people who don't," and while I'm not shilling for the book I think some of the relatively widely publicized summaries of its high points are worth recapping.

Charan's mission seems to be something along the lines of articulating the difference between often charismatic, visionary and immensely articulate "leaders," and those who actually get things done, even if from an unassuming, self-deprecating stance.   Fortune in its current print issue has a nice piece by him which summarizes it as well as anything I've read, but alas it's not online yet (or maybe not on line ever; if anyone out there can explain to me what the vast all-knowing Time Inc. megamediaopoly decides in its wisdom to put online, and what not to, I'll be able to save an acre or two of trees).

In the meantime here are two versions of his top-eight hot dots, the first from him:

Ram Charan's insight into the real content of leadership provides you with the eight fundamental skills needed for success in the twenty-first century:

• Positioning (and when necessary, repositioning) your business by zeroing in on the central idea that meets customer needs and makes money
• Connecting the dots by pinpointing patterns of external change ahead of others
• Shaping the way people work together by leading the social system of your business
• Judging people by getting to the truth of a person
• Molding high-energy, high-powered, high-ego people into a working team of leaders in which they equal more than the sum of their parts
• Knowing the destination where you want to take your business by developing goals that balance what the business can become with what it can realistically achieve
• Setting laser-sharp priorities that become the road map for meeting your goals
• Dealing creatively and positively with societal pressures that go beyond the economic value  creation activities of your business.

If that seems a little terse—it does.  And ever so slightly Delphic (read:  inscrutable) in its brevity.  So I'll give you the longer (still essentially Cliff's Notes) version, courtesy of CIO Insight: 

1. Positioning the Business to Make Money.
You have to keep the business in sync with your customers at all times, and ahead of the external environment. Figuring out what to add, what to take out, what new opportunities might arise for profitable growth and which technologies to adopt are among the most demanding requirements of the twenty-first century leader. It is a challenge, for example, now facing publishers of magazines and newspapers as they see their decades-long stable positioning shattered because of the Google phenomenon and the resulting decline in advertising revenue.

2. Connecting the Dots by Pinpointing and Taking Action on Patterns of External Change.
Your success depends on your ability to detect emerging patterns of change clearly and precisely. You have to look at the business very broadly and from the outside in and have the tenacity and imagination to fill in the gaps until the foggy picture becomes clearer and more complete. This know-how is how you get ahead of the curve and on the offensive instead of constantly putting out fires.

3. Getting People to Work Together by Managing the Social System of Your Business.
Your biggest untapped opportunity for success is shaping the way people work together. Your own performance depends on your ability to get other people to coordinate their actions and work toward a common goal. Managing what I call the social system is how Bob Nardelli was able to transform Home Depot from its "stack it high, watch it fly" culture to one that delivers on its new performance requirements.

4. Judging, Selecting, and Developing Leaders.
You need the right people in the job, but getting the right match depends on your ability to judge people accurately, based on the carefully observed patterns of their decisions, actions and behaviors.

5. Molding a Team of Leaders.
You may have stars working for you, but the next challenge is persuading them to submerge their own agendas in the interest of delivering overall results. Molding a team of leaders is a huge multiplier of your capability for making better decisions and getting things done.

6. Determining and Setting the Right Goals.
Too often, goals are chosen by looking in the rearview mirror and adding some incremental adjustment. Goals must be set relative to the opportunities that lie ahead, and the organization's ability to achieve them.

7. Setting Laser-Sharp Dominant Priorities.
The right priorities keep the truly important things from being driven off the radar screen. When the priorities are unmistakably specific, people know what should be getting their attention and follow-through, and what distractions they should ignore.

8. Dealing with Forces Outside Your Control.
Anticipate which outside forces might throw a monkey wrench into the forward movement of your business. Prepare for the issues outside constituencies raise, and judge the risks they may pose to your business model.

I'll add an observation of my own:  Too often we super-verbal presentation mavens who love to hog the spotlight (I'm talking about lawyers) behave as though the activities of meeting and talking, preparing documents, developing mission statements and policies for our firms, and planning, substitute for, or even supersede, action. After all, weren't we trained starting with the Socratic case method in law school that stature and approbation went to the smooth, the glib, and the assertive?

So where does this leave us?

Simply here:  We (yeah, lawyers again) are if anything hyper-trained in verbal sparring and analysis, while at the same time we're often brokers, or agents ("hired guns" in the vernacular) for those who are actually making the decisions, launching the deals, creating the patentable inventions or protectible intellectual property, pushing the envelope on tax code interpretations, or initiating strategic litigation with goals other than and above from its superficial causes of action.

I'm here to tell you that when it comes to managing your firm, this won't cut it.  Give me the mediocre strategy superbly executed?  Analytic response:  "We despise mediocrity here."  Street-smart response:  "When we're done, they won't know what hit them."

Daniel Goleman, author of the 1995 best-seller "Emotional Intelligence" (over 5 million copies in print, in 30 languages) is now out with a sequel of sorts, "Social Intelligence," which deals with how we can be smarter in relationships with each other, be more empathetic, and learn how to read others' cues and act on them. 

Before I go one word further, a plea:  All of you who are about to "check out" psychologically or emotionally because this piece is starting to look like it will dwell on "soft" and not "hard" issues, let me ask you to bear with me for a few more paragraphs.  I promise it can pay off to litigators and transactional lawyers alike (not to mention the usual suspects, managing partners, senior partners, and executive committees).

Our starting point is an interview with Goleman by the Financial Times in its always-entertaining "Lunch with the FT" column which runs each weekend. 

Goleman's Social Intelligence has direct application to your firm, your office, your practice group:

"[Goleman:] A work environment that is emotionally toxic is also a great detriment to effectiveness. Socially intelligent leaders recognise that part of their world is to help other people be at their best - which is to be motivated, be enthused and be interested."

"[FT:] Does it surprise you how many leaders can't seem to do that effectively?

"Goleman answers almost mid bite: "It not only surprises me, it appals me. Frankly, it suggests to me that too many organisations are rather naive about the ingredients of leadership and make the classic mistake of assuming that someone who is an outstanding individual contributor would therefore be an outstanding leader. If they're an outstanding individual contributor keep them as an individual contributor. Give them a raise," he says emphatically."

Still assuming that your key rainmakers are the leading candidates for your next firm chair? 

Short of selecting your next firm chair, what can we take away from Goleman's thoughts? 

Surely every litigator facing an adversary, cross-examining a hostile witness, or even defending the deposition of a friendly one, can learn something; as can every corporate/-transactional lawyer negotiating a deal or trying to understand a client's true business objectives.  This is Goleman's response when asked by the FT reporter "How do we get better" at this talent called "social intelligence?:"

"Listening poorly is the common cold of social intelligence. And it's being made worse by technology. To have a human moment, you need to be fully present. You have to be away from your laptop, you put down your BlackBerry, you end your daydream and you pay full attention to the person you're with. It may sound rudimentary, but think about how often we just keep multitasking and half pay attention. You can overcome that by becoming mindful of what is happening."

"Mindful of what is happening."  A friend of mine has a term of exceptionally high praise reserved for people who truly earn it, and they are few and far between.  The phrase is "of the moment."  People who listen "of the moment" are blessed, and worth deeply engaging with.

Wouldn't you aspire to be seen as worth deeply engaging by clients, colleagues, and heck, even your spouse and kids?  Be, then, of the moment.  Be mindful.  Be socially intelligent.

This takes us to the topic du jour.  Last week I had the opportunity to interview Dave Egan, Chief Marketing Officer at Reed Smith.  Dave has had an unusual career trajectory, in that he spent 20 years at a leading advertising agency before moving into law-firm-land with no prior experience in the industry.  But as you'll see, that makes more sense than may first appear to the eye.  I hope you find the summary of my conversation with Dave enlightening.

Dave joined Ketchum Advertising in Pittsburgh out of college and, as noted, spent 20 years there, starting as a junior account executive and ending as President of the Pittsburgh office.  Clients ranged across a broad array of industries from consumer packaged goods and manufacturing to professional sports marketing.  After 20 years, Ketchum was taken over by Omnicom and Dave started became President of a start-up broadcasting company.  

When he sought advice on how to exit his new firm from his long-time friend at Reed Smith, Greg Jordan, the conversation took an unexpected turn as Greg had just assumed the chairmanship of Reed Smith and was seeking to build a team of top C-level executives.  In a word, Greg asked Dave if he'd be interested in becoming the firm's CMO. 

Initially, Dave was highly skeptical given the, shall we say, checkered track record of CMO's at law firms at that time (that time being 2002), but a series of conversations with senior management at Reed Smith convinced him that the firm was serious about a professional, respected, integral-to-the-firm, marketing effort.

At Reed Smith, Dave reports to Greg Jordan and Michael Pollack, Director of Strategy, and in turn is responsible for branding and communications, business development across the firm (including the US, the UK, and the Mideast), and new initiative called "clients and markets" intended to understand the firm's clients better and anticipate their changing needs.  This includes team-based approaches to the firm's top 40 or so most strategic clients, as well as client interviews (in person for the most important clients, and online surveys for another 1,000/year), and finally a "Director of General Counsel Relations," Marti Candiello, who is responsible for communicating with key clients and ensuring relations are strong (and fixing them if they aren't).

I asked Dave what had been easier and what had been harder than he anticipated.   Easier:

• The bromide about "herding cats" was not as true as he'd feared; he's found that, particularly with senior-level people, they're bright, collegial, and exceptionally easy to work with.
• Fascinatingly, he believes that the characteristics of high-performing lawyers (bright, opinionated, outspoken, and generally of the view that they could do your job at least as well as you if they had any interest in it) are extremely similar to those of "creative's" in the advertising industry, and thus that his experience handling and managing creative's was an invaluable piece of his background.
• Another dimension of his advertising firm experience that bore one-to-one correspondence with his role at Reed Smith was his account management background.  (For those of you unacquainted with the lingo, "account management" is the function within agencies of managing the relationship with the client, coordinating the activities of the creative, research, and media departments, and essentially developing the core strategy of each marketing campaign.)  Dave reported that this had equipped him surprisingly well for dealing with his "clients" at Reed Smith:  The partners at the firm and their clients.
• The intellectual level of discourse at law firms is far higher than at ad agencies; you can assume that essentially everyone in sight is bright, analytic, and articulate.

Harder:

• Holding on to good people.  This surprised me, so I asked Dave to elaborate:  He reported that as marketing is increasingly perceived as a peer-group, eye-level, professional discipline and function within law firms, on a par with finance and IT, the demand for qualified and competent professionals exceeds the supply.  This puts pressure on recruitment and retention.  I took this report "from the trenches" as a leading indicator of how marketing is and will be viewed by forward-looking firms, and infinitely more credible than any breast-beating screeds by "it's all marketing, all the time" apologists, believers, and zealots.

While Dave is responsible for "integrated" marketing for Reed Smith, meaning:

• advertising
• public relations
• events
• direct mail and one-on-one meetings
• CRM, or customer relationship management,
• and business development,

he reported that the most critical communications platform by far for the firm was its website. Somewhat surprised at the fervency of his endorsement of our medium (but, between you and me, deeply pleased), I asked Dave why he felt that was so, and he replied that while he loved and was a big believer in advertising, the audience Reed Smith wants to reach is hard to find in substantial concentrations in conventional media, and, more importantly, inherently skeptical and critical.   So the "one-way" monologue of traditional advertising is less effective (because less meaningful to the audience) than the two-way interactivity of the website.  Which, of course, is precisely why you're reading "Adam Smith, Esq." on-screen instead of receiving it monthly in the mail.

Clearly, the challenges ahead for Dave and his team, and Reed Smith overall, are daunting:  The Richards Butler (London) merger was just formalized as of 1 January, and the merger with 140-lawyer Chicago-based Sachnoff & Weaver is due to be finalized in March (having been formally approved by both partnerships late last year).  In his time at Reed Smith, the firm has gone from being a well-regarded mid-Atlantic firm with strong Pittsburgh roots and some financial-services expertise to a truly international firm with a serious footprint in global cities (NYC, London).

My takeaway:

• Twenty years (15? 25?—pick your number) after law firms realized marketing was something corporate America takes for granted as an essential core competence, they're finally getting serious about walking the walk.
• A career in advertising agencies is not a bad background, at all, for a law firm CMO—and a smarter, savvier, and more astute choice by far than what your average linear-thinking headhunter would recommend:  Someone who's already CMO at a smaller law firm (yawn).
• The challenge of marketing sophisticated professional services calls for senior-level marketing pro's at the top of their game, who can go toe-to-toe with your most critical (shall I say acerbic?) partners and stand their ground.

Your resolution might be to take another look at your marketing effort; mine shall certainly be to write more about this once-neglected dimension of our industry.

I got the news on my BlackBerry early this afternoon, but it's all over the place now (WSJ, American Lawyer, Bloomberg [where yours truly is quoted]):  The Dewey-Orrick merger is not to be.

I'm sorry. 

I felt from the beginning it held great promise, and could overturn the received wisdom that elite New York City firms never merge.   I still believe the ice may have been broken on that particular conceit, and if so it's excellent long-run news, if disquieting short-run news, to precisely those New York elites.   Another way of saying this is that as supremely lucrative as being at the top of the legal food chain on this miraculous island is, the world changes and the supremacy of the incumbents is always earned every year, not guaranteed as if by primogeniture.

Without any actual information about what went wrong, I have only a few general observations about the merger cancellation:

• It's a truism that the longer consummation of "the deal" takes, the more likely it is that people begin to get seriously cold feet.
• We are about as far removed from a command-and-control, hierarchical managerial model as could be imagined, and if leaders of a firm say, "March," the response will be "Why?" rather than "Yes, sir."  This ties back into the point above.
• The "material exodus" of partners from Dewey that I'm quoted on in the Bloomberg story was bad news for Orrick and bad news for Dewey:  For Orrick, obviously, because they would get less firepower than they hoped to; but equally so for Dewey whose partners might begin to conclude that the maybe/maybe-not status of the deal, with its concomitant talent erosion, might be too high a price to pay.

Will this, then, be taken as a cautionary tale that we as a profession and an industry should dial back on aspirations for ambitious combinations? 

I could be wrong, but my money at the moment is on, "Not on your life."

Aric Press, always worth reading, writes in this month's American Lawyer about potential challenges to the Rosy Scenario common wisdom of leaders of the AmLaw 200.   He reports:  "So is there anything to worry about for the future of the large and grand law firms? Really only two things: their clients and their lawyers. That's all."

On the client side, he delineates the challenges as follows:

• "First, is there enough demand to sustain all the law firms...
• "Second, as clients grow ever more sophisticated, will they continue to put up with service that is not as attentive as it should be...
• " Third, clients have put more demands on firms to work with teams of lawyers who are more balanced by gender and race [and it's not clear how firms can respond].
• " Fourth, will clients support the global firm model?"

And on the firm/lawyer side, the challenges primarily have to do with the war for talent, leadership, the Baby Boom/Gen X-Y transition, and the tension between being "revenue machines" and professionalism.

Aric also cites, while discounting, the odds of a major "exogenous" disruption such as the passage of Clementi-style reforms here in the US, or a major merger between a Western and a Chinese firm—two eventualities to which I would assign far higher odds, at least if your timeframe is a decade or so.

Fascinating, but all woolly speculation until it hits home? 

I think not. 

The pressures on our profession, and our industry (for it is indeed both), to innovate have never been greater.  Increasingly, "the way it's always been done" is not a satisfactory strategy or approach.   We have had distant early warnings of this for well over a decade, and if you doubt that—or even if you don't—I invite you to read The New York Times' coverage of Lord, Day, & Lord's closing its doors in 1994 (with the pithy headline/diagnosis:   "Oldest Law Firm is Courtly, Loyal, and Defunct"). 

The problem is that we've never been much good at innovation.  And now we have no choice.  As it turns out, corporate America doesn't have a stellar reputation for innovation either, which has made it the subject of study at—where else?—Harvard Business School.  Indeed one of the 25 most-read articles of 2006 on HBS's "Working Knowledge" site was "Lessons Not Learned About Innovation," featuring renowned Prof. Rosabeth Moss Kanter. 

What lessons are "not" learned?  Mistakes of the past are repeated, to begin with, including these basic no-no's:

• burying the innovation team under bureaucracy
• conversely, treating them as super-stars more valuable than the rank and file doing the dirty work of pulling in revenue and satisfying clients
• choosing people to "lead" the team who can't communicate and can't relate, and
• sounding the trumpet for innovation but then shooting down every actual proposal brought forward.

More interesting is what does work at fostering innovation, and I'm pleased to report that Prof. Kanter's very first recommendation is to "look for small innovations, not just blockbusters," as this has long been one of my themes when asked to discuss innovation or creativity.  Indeed, one of chief lessons of Clayton Christensen's classic, The Innovator's Dilemma, is that small creations with, initially, minimal functionality, can grow up into the category-killers that slay the incumbents.   The other problem with swinging for the fences is that, sad to report, it's typically beyond we mere mortals' ability to envision the entire business ecosystem needed to let an innovation truly flourish and, locked in to current assumptions, we either clone what we're familiar with or suffer a complete meltdown of vision.  An example?  Ken Olsen, co-founder of Digital Equipment Corporation, famously said in 1977 that "there is no reason for any individual to have a computer in his home."

Another message is to keep lines of communication actively and vigorously open, between the innovation teams and the people who are keeping the trains running on time.  You can only imagine the types of resentful, self-defeating behavior that could be engendered by treating the new team as presumptive keepers of the keys to the future.

Perhaps the most helpful piece I'm aware of in terms of getting a handle on innovation is also from "Working Knowledge," Why Managing Innovation is Like Theater, which also argues for "exploration, adjustment, and improvisation."   This is particularly true of the type of work lawyers do:

"knowledge work, which adds value in large part because of its capacity for innovation, can and often should be structured as artists structure their work. Managers should look to collaborative artists rather than to more traditional management models if they want to create economic value in this new century."

Fine, but how do artists "structure their work?" Essentially, through cheap and rapid iteration, a/k/a practice. Rather than trying to get it right the first time, focus on keeping the cost of re-doing it low. The flow is:

• try
• learn
• reconfigure

This essentially substitutes experience for analysis, which is going to make the lawyers in the audience extremely uncomfortable at first blush.  All I can say is, "try it, it works." 

So:  We are being called upon to innovate as never before, something which:  (a)  We have a lousy track record of;   (b) We tend to instinctively recoil from; (c) Requires us to substitute experience for analysis, and substitute experimentation for perfection.

But really, we have no choice.  So we may as well try to be good at it.